Chevron Chemical Company, acting through its attorneys at the prominent Washington law firm of Steptoe & Johnson, offered lawyers suing Chevron a $75,000 consulting contract as part of an effort to settle the lawsuit.

The offer was made in September 1982 to lawyers representing Richard L. Ferebee, a 52-year-old Washington gardener who claimed his lung disease was linked to his use of the weed-killer paraquat, which is distributed by Chevron. Ferebee died before his suit went to trial, leaving behind a videotape of his testimony and minor children among his heirs.

Several legal scholars and spokesmen for the D.C. Bar said the settlement offer seemed highly unorthodox and questioned its potential for creating a conflict of interest, pitting the lawyer's self-interest against that of his client.

Ferebee's attorneys, Nathan L. Finkelstein and Robert C. Liotta, refused the offer and went on to win a federal court decision against Chevron. The case is now on appeal.

Finkelstein and Liotta said Chevron's offer of a $75,000 three-year consulting contract was part of a settlement proposal that included $88,000--later increased to $99,000--to be divided among Ferebee's heirs, in return for settling the suit and turning over some case files to Chevron. They said they were also asked orally to agree not to bring more paraquat cases against the firm.

Steptoe & Johnson chairman John E. Nolan Jr. said the offer was made with full disclosure before a U.S. magistrate in a pretrial settlement conference and that it was "expressly subject to the approval of the court." Nolan said that the consultancy offer was equivalent to an offer to pay legal fees, and that Ferebee's attorneys would not have been called upon to act as "counsel for Chevron" until after the case was concluded. There was no express request that Ferebee's attorneys agree not to take more paraquat cases, according to Nolan, who said there was some restriction of this kind implicit in the proposed consulting arrangement.

Finkelstein disagreed. "I felt like I was being bought off or there was an effort to buy me off."

His partner, Liotta, said: "It became apparent in discussions that this consulting contract would require us to do nothing. We were to get $75,000 . . . it was to get us on their payroll so we could not represent future plaintiffs in paraquat litigation because we knew too much and had all their documents."

The stakes in the Ferebee case potentially go well beyond the suit alleging that Ferebee's lung disease, diagnosed as pulmonary fibrosis, was caused by exposure to "Ortho Paraquat CL." The jury linked Ferebee's ailment to his use of paraquat and skin exposure to it.

If upheld, the case might lead others to sue Chevron, and thus might generate adverse publicity affecting the estimated $75-to-$80 million-a-year paraquat sales for the San Francisco-based firm.

"Someone was saying our product could hurt you if you used it in the normal course," said Gerald Doppelt, Chevron's vice president and general counsel. "There was a hell of a lot at stake."

Several legal scholars and bar spokesmen contacted said they had misgivings about the propriety of offering to hire opposing counsel while litigation is pending, but they disagreed on which provisions, if any, of the ethics code prohibit such offers.

One Yale Law School professor said that whatever potential for conflicts of interest were inherent in the offer were resolved because they were fully disclosed before a court official.

Offers to retain opposing counsel made after litigation is concluded are not uncommon.

There is much dispute within the legal community, however, over the ethics of various ways in which legal fees can be paid in settlement.

Loren Kieve and Laidler B. Mackall, the attorneys who represented Chevron, declined comment. Firm chairman Nolan said it was not the intent of Chevron nor Steptoe & Johnson attorneys in making the offer to set the interests of Ferebee's attorneys against those of their client. Chevron had intended that Ferebee's attorneys accept the consulting contract so that the attorneys, once on retainer to Chevron, would not bring future paraquat cases against the firm, Nolan said. Such an offer does not violate the ethics code, he said.

"The purpose of the offer was to have plaintiff's counsel with their knowledge of this type of case working for Chevron rather than against it," Nolan said.

Doppelt said he could not discuss the Ferebee settlement offer. "I think it's a matter of professional obligation," said Doppelt, "that we keep secret whatever they offer to us, and we keep secret whatever we offer to them . . . if someone else divulged matters discussed in private negotiation, I think that would be unethical."

"Absolutely nothing either I or the company did was unethical in any way," said Doppelt. "I would hold myself to any professional examining board and nothing I did would be found wanting."

The Ferebee case shaped up as a contest between "David and Goliath," Finkelstein recalled: A gardener represented by a three-person law firm versus a subsidiary of Standard Oil Company of California, represented by the 180-lawyer Steptoe & Johnson firm.

Ferebee worked at the Beltsville Agricultural Research Center tending plants and used the herbicide paraquat between 1977 and 1979. He filed suit against Chevron in 1981, and died on March 18, 1982, before his suit went to trial.

The action was continued by his estate and a wrongful death action was brought by his minor children. After three days of deliberation the jury was divided and a mistrial was declared.

On Sept. 1, 1982, within weeks of the scheduled retrial, Steptoe & Johnson attorney Laidler B. Mackall offered Liotta and Finkelstein a three-year $75,000 consulting contract with Chevron, and $88,000 to be divided among the heirs of Ferebee. The offer was made before U.S. Magistrate Jean F. Dwyer in her chambers.

As part of the offer, said Finkelstein, they were to turn over some of their case files to Chevron. Among the documents in the files were those obtained during the course of the lawsuit that contained reports of paraquat-related injuries, Finkelstein said.

In its appellate court filings, Chevron wrote that since 1966 when the company began distributing paraquat in the United States, the product has been the subject of hundreds of scientific studies, more than one million people have used it, and "no one has ever experienced serious illness or death from using paraquat."

Finkelstein and Liotta said they remember Magistrate Dwyer's response to the offer Mackall made. Said Finkelstein, "Her reaction was strong . . . she looked at Mr. Mackall and said, 'Mr. Mackall, I am astonished . . .' and then she made some comment to the effect that 'I'm certain that this offer was being made by your client and you are just conveying it to the plaintiffs . . . .' "

Dwyer declined to comment on the matter.

Finkelstein said the offer potentially placed him in a situation that pitted his interests against those of his clients. "Is my judgment being clouded because here a major U.S. corporation is offering me an opportunity to be a consultant? Am I going to say to my clients, 'Well, gee, I think you should accept this settlement because it's wonderful for you' and maybe compromise my judgment?"

"In a sense," said Finkelstein, "it flattered my ego, I must confess . . . . It made me think that my opponents feared me."

Nolan, of Steptoe & Johnson, would not comment on whether he regarded the offer as ethical. He said that District law requires that a judge ultimately approve the settlement terms because of the involvement of guardians for Ferebee's minor children. Nolan, citing an opinion of the Legal Ethics Committee of the District of Columbia Bar, said that court approval of an agreement that might otherwise violate a disciplinary rule "could justify a departure from the general policy of the Disciplinary Rule."

H. William Allen, chairman of the Standing Committee on Ethics and Professional Responsibility of the American Bar Association, said it was the first time he had heard of such an offer being made while litigation was pending. That it was done before a magistrate and would require approval of a judge, he said, shows it was done in "full and open disclosure. It may not eradicate the problem. It certainly is a fact of some significance, but it doesn't resolve the problem of putting the lawyer and his client at odds."

Robin Alexander-Smith, an ethics lawyer for the American Bar Association, said it was her view that the consultancy offer was unethical even if made before a magistrate and requiring judicial approval.

"The fact that it was done so openly," said Alexander-Smith, "just makes me think the people doing it were insensitive to their obligations. They sound like they really didn't know there was something inappropriate. It would be very hard to conceive of someone who has graduated from law school and practiced law not knowing any better."

But Quintin Johnstone, who teaches legal ethics at Yale Law School, said he believes that whatever questions are raised by an offer of a consulting contract were resolved because the offer was made before a U.S. magistrate and disclosed to the plaintiffs.

In a Sept. 13, 1982, memo to lawyers representing Ferebee's minor children, Liotta and Finkelstein wrote: "It is our opinion that this offer was blatantly unethical and we rejected it. The stated purpose of Chevron's attorneys in making such an offer was, that they wanted to prevent us from representing other plaintiffs in similar actions because we would then technically be employes of Chevron Chemical Company . . . we felt it was perfectly appropriate for us to reject the offer."

Ronald D. Rotunda, professor of law at the University of Illinois College of Law, and author of a text on legal ethics widely used in law schools, said he viewed the offer of a consulting contract during litigation as "highly irregular and unethical."

Law professors at Stanford and Georgetown said that the offer of a consulting contract made during litigation is not equivalent to the payment of legal fees. They said such offers, unlike the fixed amount of a fee, hold out to plaintiff's attorneys the possibility of an ongoing client relationship with the defendant employer which, though impossible to quantify, may induce the plaintiff's attorney to settle a case against the best interest of his client.